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Uganda goes down the PPP route

Uganda goes down the PPP route

December 11, 2014

In July 2014, Uganda joined the list of African countries that have implemented Public Private Partnership or "PPP" laws, by passing the Public Private Partnership Bill 2012 (the PPP Law). As in many African countries, improving Uganda's infrastructure is seen as a key step in unlocking its economic potential. To address this, Uganda has identified a robust pipeline of road, power and social infrastructure projects which are beginning to come to market. These offer opportunities to both sponsors and lenders.

The PPP law adopts a simple approach. It focuses on establishing the framework for a successful PPP programme - it is not over-prescriptive and allows for different structures. This should provide comfort to both potential lenders and sponsors seeking a degree of certainty over process.

The Ugandan government envisages that the PPP Law will apply to design, build and operating projects across most industrial sectors, including transport (roads, rail and air), IT, social infrastructure, oil pipelines/refineries, mining and energy (both generation and transmission / distribution). The key requirement is that the proposed project "fulfils the objectives of the National Development Plan".

PPP Law - the principles

The PPP Law sets out eight basic principles of which the following will be familiar to all practitioners of PPP:

"ensuring value for money, by optional allocation of risks to private parties and maximisation of the benefits to be obtained from the expertise and financing by private parties"

"ensuring that the procurement of a [PPP] does not restrict competition among bidders and that it is conducted on equal terms and uses objective criteria".

Other principles relate to accountability and transparency.

PPP Law - the substance

The key areas that the PPP Law covers are as follows.

Management of PPPs

The PPP Law covers, among other things, the roles of:

the contracting authority (including clarifying its ability to participate in any financing); and

government officers, such as the accounting and project officers.

A streamlined and efficient process is a prerequisite for lenders and investors. They will welcome the requirement that the project officer must have "the required technical skills".

PPP Unit

The Ministry of Finance is charged with setting up a central PPP unit. Central PPP units can be a useful source of information and are often used to address 'deal breaking" issues which can arise where the public sector lacks the requisite expertise. Its remit includes providing guidance and assistance in the development of projects. It will "assess projects for [PPPs] to confirm that they are affordable and that financial commitments are manageable in terms of the debt management policy and that they are within the Government policies". This may be useful for potential investors concerned about affordability or viability. Its role also extends to advising government on PPPs and training public sector staff on PPPs.

The PPP Process

The PPP Law sets out a detailed procurement cycle process. It also sets out rules on evaluation, disqualification and oversight. For example, the contracting authority's monitoring of the relevant PPP must be supplemented by an annual audit by the Auditor General.

In addition, PPP agreements above a threshold monetary value must be approved by the Cabinet. The extent to which the parties can amend commercial terms after this approval is unclear. So lenders need to be involved as early as possible in the process and before the project is approved.

The PPP Law also sets out what a PPP agreement must cover. This comprises a list of clauses and risk allocations that an investor or lender would expect to see in any PPP agreement to ensure "bankability". It does not prescribe the drafting of these terms, but the government may issue more detailed guidance on contractual terms in the future.

The Procurement Process

The PPP Law, now separated from general procurement requirements, provides for both competitive (open or restrictive) and non-competitive bidding methods. The latter could involve direct procurement by the government or (subject to satisfying specified criteria) unsolicited bids from sponsors. However, even where an unsolicited bid is accepted the proposal remains subject to a competitive bidding process in which "all interested parties" may participate.

Any procurement must be fair, equitable, transparent and competitive, an important and familiar principle in PPP. The successful bid must be "the most economically advantageous, or [have] the lowest price".

Types of PPP Agreement

As in many other emerging markets, seven types of contractual/concession models are permitted including BOOT, BOOM, BOO, DBFO , O&M and LDO.

Other points relevant for potential private sector investors

Any SPV must be incorporated in Uganda (this is not an uncommon requirement in emerging markets).

Any transfer of shares requires the consent of both the Ministry of Finance and the sponsoring Ministry - there appears to be no time bar.

The public sector retains the right to contribute financially towards individual projects, provided the relevant body is authorised to do so by Article 159 of the Constitution.

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